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Subdued inflation in India is proving to be a dilemma for Prime Minister Narendra Modi weeks before a crucial vote.

While most politicians heading into elections would want to cheer their efforts in taming the inflation dragon -- especially in emerging economies like India, where price surges can oust governments -- Modi has been restrained about this achievement.

That’s because low inflation has been driven by falling food prices, cutting farmers’ incomes and pushing up debt levels. About 800 million of India’s 1.3 billion population depend on farming for their livelihood. “While Modi has managed to keep inflation under control, it has come at a cost,” said Priyanka Kishore, head India and South-east Asia economist at Oxford Economics in Singapore. “Falling rural incomes and farm distress have taken the shine off one of the key achievements of the Modi government.”

On the plus side, the slowdown in inflation raises the prospect of another interest-rate cut in April, providing Modi with a much-needed boost to the economy. Consumer prices rose 2.57 per cent in February, compared with a median estimate of 2.4 per cent in a Bloomberg survey, but well below the Reserve Bank of India’s medium-term target of 4 per cent.

“The RBI cut interest rates in February and laid the groundwork for further loosening over the coming months,” said Shilan Shah, senior India economist at Capital Economics Ltd. in Singapore. “With headline inflation still below target, the next cut could come as soon as the policy meeting in April.”

Fighting Inflation

Inflation has more than halved under Modi’s regime, averaging 4.8 per cent since 2014. In contrast, consumer-price growth averaged more than 10 per cent during 2009-2013.

Modi was voted into power, promising to double farmers’ incomes by 2022. He also pledged to fight persistent high food inflation, which had triggered anger towards the previous Congress-led government.

His administration tackled hoarders and carried out agriculture marketing reforms that have helped to break the monopoly of licensed traders and lowered marketing costs for farmers.

The introduction of the goods and services tax in July 2017 has also brought down food transportation costs, according to Pranjul Bhandari, chief India economist at HSBC Holdings Plc, while bumper harvests, both at home and abroad, have helped keep food prices tame.

Governor Shaktikanta Das, who is seen favouring monetary policy easing, has flagged concerns about weaker growth, saying benign inflation conditions make it easier to lower rates and give a boost to investments at a time when global risks are rising.

A slowdown in India’s rural economy deepened in January, reflecting a crunch on spending by agricultural workers, according to Bloomberg Economics.

“Given the size of the rural economy in India, this adds headwinds to growth more broadly," said Abhishek Gupta, Bloomberg India economist.